Property TaxProperty Tax

Presentation ByPresentation By

Dr. J. M. PhatakDr. J. M. Phatak

Commissioner,Commissioner,

Municipal Corporation of Greater MumbaiMunicipal Corporation of Greater Mumbai

Legal ProvisionLegal Provision

• Bombay Provincial Municipal Corporation Act 1949, Bombay Provincial Municipal Corporation Act 1949, Section 127(1) Corporation Section 127(1) Corporation shall shall impose Property Tax, impose Property Tax, 127(2) 127(2) maymay impose (a) water tax, (b) conservancy tax, impose (a) water tax, (b) conservancy tax, (c)general tax.(c)general tax.

• Mumbai Municipal Corporation Act 1888 – Taxation Mumbai Municipal Corporation Act 1888 – Taxation shall shall be imposed (1) property tax, (2) tax on vehicles and be imposed (1) property tax, (2) tax on vehicles and animals, (3) theatre tax and (4) octroi.animals, (3) theatre tax and (4) octroi.

Higher Tax on LandHigher Tax on Land

• Economist Henry George suggests higher tax on land Economist Henry George suggests higher tax on land

instead of building.instead of building.

• Higher Tax on building encourages holding land unused Higher Tax on building encourages holding land unused

or allowing buildings to deteriorate, a higher tax on land or allowing buildings to deteriorate, a higher tax on land

encourages efficient use of property.encourages efficient use of property.

• More followed in Australia and New Zealand.More followed in Australia and New Zealand.

Rateable Value based on Property TaxRateable Value based on Property Tax

• Rateable value defined under the Rent Act is expected rent Rateable value defined under the Rent Act is expected rent in the year of construction. in the year of construction.

• Thus old buildings have lower ratable value.Thus old buildings have lower ratable value.

• In municipal Corporations , there is no limit on the tax as In municipal Corporations , there is no limit on the tax as percentage of rateable value.percentage of rateable value.

• In Mumbai residential, 83.5% with water meter In Mumbai residential, 83.5% with water meter

187.50% without water meter187.50% without water meter

Rateable Value based on Property Tax Rateable Value based on Property Tax (Contd.)(Contd.)

• Municipal Councils – Municipal Councils –

• A Class A Class 23 – 28 % of rateable value 23 – 28 % of rateable value

B ClassB Class 22 – 27% of rateable value 22 – 27% of rateable value

C ClassC Class 21 – 26% of rateable value 21 – 26% of rateable value

• Village Panchayats 2 – 3 % of rateable value.Village Panchayats 2 – 3 % of rateable value.

• A plot of land of 100 sq.mt. in Haji Ali would attract A plot of land of 100 sq.mt. in Haji Ali would attract Rs.84,717 on vacant land while Rs.1.44 lakh per year for Rs.84,717 on vacant land while Rs.1.44 lakh per year for metered non-residential property. metered non-residential property.

Vacant plot in Haji Ali

1. Area 100 sq.m.

2. RLR( Residential Letting Rate)Rs. 94 per Sq. m.

3. Land rate 100 times RLR, Rs. 9400 per sq.m.

4. 100 sq.m. land Rs. 9.40 lacs

5. 12% of cost Gross Rateable Value Rs. 1.12 lacs

6. After deducting 10% statutory deduction Rs. 1,01520

7. Property tax @83.5% Rs. 84,770 on vacant land

Building at Haji Ali

• Area 100 sq. m.

• FSI 1.33, Buildable 133 sq m.

• Residential Letting Rate per sq m. Rs. 940 per sq m.

• Gross rent Rs. 12502

• After deducing 5% for water pump, lift etc. Rs. 11,877/-

• Yearly rent Rs. 142524/-

• Property tax Rs.107105/-

British SystemBritish System

• In 33 boroughs of Greater London, the property tax In 33 boroughs of Greater London, the property tax

is based on rateable value. However, the Sterling is based on rateable value. However, the Sterling

Pound has not depreciated over the last 100 years Pound has not depreciated over the last 100 years

like the Indian Rupee. So distortions have not taken like the Indian Rupee. So distortions have not taken

place between older and newer buildings.place between older and newer buildings.

Shift to Capital ValueShift to Capital Value

• Today in South Mumbai, the land values as well as the Today in South Mumbai, the land values as well as the rentals are much higher than in the Suburbs. However, rentals are much higher than in the Suburbs. However, for self-occupied properties in older buildings, the for self-occupied properties in older buildings, the rateable values are much lower.rateable values are much lower.

• Rent Control.Rent Control.

• Shift to capital value is still under consideration of the Shift to capital value is still under consideration of the legislature and should come up in the Nagpur session legislature and should come up in the Nagpur session of the Maharashtra Assembly.of the Maharashtra Assembly.

Capital Value as the baseCapital Value as the base

• The American systemThe American system

• Capital Value is not totally without faults. As capital Capital Value is not totally without faults. As capital values jump, home owners with fixed income such as values jump, home owners with fixed income such as retired people discover with alarm that their annual retired people discover with alarm that their annual property tax bills are rising sharply. This had resulted property tax bills are rising sharply. This had resulted into tax revolt in US leading to proposition 13 in into tax revolt in US leading to proposition 13 in California.California.

• Homestead exemptions rolling back property tax ratesHomestead exemptions rolling back property tax rates

ObjectivesObjectives

• To create a Property tax System which isTo create a Property tax System which is

– Transparent and Objective Transparent and Objective

– Fair and Just for all CitizensFair and Just for all Citizens

Capital Value based Property Tax Capital Value based Property Tax

Tax is calculated by a simple formulaTax is calculated by a simple formula

Tax= r * Area * ( M.V. * U * C * A )Tax= r * Area * ( M.V. * U * C * A )

‘‘M.V.’M.V.’ = Market Value as per Stamp Duty Ready = Market Value as per Stamp Duty Ready Reckoner Reckoner

‘‘A’ A’ = Age Factor= Age Factor

‘‘C’ C’ = Construction Factor= Construction Factor

‘‘U’ U’ = User Factor = User Factor

‘‘r’ r’ = Tax Rate= Tax Rate

Impact of proposals Present V/s Proposed Impact of proposals Present V/s Proposed

User-wise Rate Per SqMtUser-wise Rate Per SqMt

Disclaimer: Tax rates and the factors chosen in this presentation are only suggestive and do not represent corporation’s final decision in the matter.

0

200

400

600

800

1000

1200

Current Tax

Proposed tax AfterCapping

Present vs. Proposed Present vs. Proposed Demand-Collection ScenarioDemand-Collection Scenario

0.00

500.00

1000.00

1500.00

2000.00

2500.00

Current Demand Current Collection

Proposed Demand Proposed Collection

Despite reduction in Demand, due to increased transparency- collection ratio will increase

All figures in Rs. Crores

Safeguards in the Proposed SystemSafeguards in the Proposed System

• Safeguards for citizens against abnormal increaseSafeguards for citizens against abnormal increase

– Residential properties with area less than 500 Sq. Ft. Residential properties with area less than 500 Sq. Ft. will pay the existing tax in case of increase only will pay the existing tax in case of increase only

– Increase in tax of other residential premises will be Increase in tax of other residential premises will be restricted to 2 times of existing taxrestricted to 2 times of existing tax

– Increase in tax of non-residential premises will be Increase in tax of non-residential premises will be restricted to 3 times of existingrestricted to 3 times of existing

– Increase in tax for all properties after every Increase in tax for all properties after every 5 years limited to a maximum of 40% of the value prevailing at limited to a maximum of 40% of the value prevailing at the time of revisionthe time of revision

General trend of capital value System General trend of capital value System City v/s Suburbs City v/s Suburbs

• All the old properties will attract increase in the tax All the old properties will attract increase in the tax

ReasonReason – Letting rates were very low – Letting rates were very low

• All the new properties around 1995 onwards will attract All the new properties around 1995 onwards will attract reduction in the taxreduction in the tax

ReasonReason – Letting rates are very high – Letting rates are very high

• This trend will be common for entire Mumbai city This trend will be common for entire Mumbai city irrespective of City & Suburbsirrespective of City & Suburbs

Thus tax on city is not being increased to give relief to Thus tax on city is not being increased to give relief to suburbssuburbs

CityCity

Ward LOCALITY

Area in sq.ft

1972-73 1977-78 1982-83 1987-88

     OLD NEW OLD NEW OLD NEW OLD NEW

A CUFFE PARADE 600 0.31 0.63 0.47 0.94 0.59 1.17 1.36 2.72

LOCALITY 1992-93 1997-98 2002-03 2006-07

     OLD NEW OLD NEW OLD NEW OLD NEW

A CUFFE PARADE 600 3.31 4.92 5.09 4.92 5.09 4.92 9.60 4.92

Thank YouThank You